Samsung Galaxy S20. (Photo by Samsung Electronics)
With smartphone demand slightly dampened by the effects of a new coronavirus infection (Corona 19) in q1, domestic smartphone manufacturers are expected to take a bigger hit in the second quarter than in the first quarter.
According to the industry on 23 March, Samsung Electronics and LG Electronics will announce the final results for each business unit in the first quarter.
On July 7, Samsung Electronics announced that sales and operating profit for the first quarter of this year had increased year-on-year, reaching KRW 55 trillion and KRW 6.4 trillion, respectively. LG Electronics also announced that sales for the first quarter of this year were 1.2 percent lower than the previous year’s KRW 14.7287 billion, and operating profit increased 21.1 percent from the previous year to KRW 1.904 billion.
The IT and mobile (IM) division in charge of Samsung Electronics’ smartphone business is expected to record operating profit of KRW 1.8 trillion to KRW 2.2 trillion in the first quarter of this year. That’s about 400 billion won less than the previous year (KRW 2.27 trillion). During this period, Samsung Electronics’ smartphone shipments were expected to reach 62.45 million units.
Samsung Electronics launched its strategy smartphone, the Galaxy S20, in the first half of last month. In February, Samsung Electronics released its second folder phone, the Galaxy Z Flip.
“Smartphone sales in q1 were expected to be effective in the galaxy S20, but due to corona 19 impact and lack of marketing, the demand for new replacements was weak at the beginning,” said Park Kang-ho, a research fellow at Boeing Securities.
On the other hand, the company said that profitability in the first quarter would be touted as a concern. With the launch of the high-priced Galaxy S20 and Galaxy ZFlip, the overall average selling price (ASP) has risen, and the corona 19 impact has reduced costs due to reduced marketing efforts.
The problem is the second quarter. Smartphone sales and profitability are expected to be sluggish in the second quarter. “Based on operating profit, the second quarter is judged to be a low,” Park said, estimating that Samsung Electronics’ smartphone sales will be 57.4 million units as Corona 19 spreads globally. This was lower than expected sales in the first quarter, down about 24% from the previous year.
In particular, the main area where Samsung Electronics’ smartphones are sold is the same as the Corona 19 affected region, and sales are expected to drop further in the second quarter.
Kang Jung-hyun, senior research fellow at Euromonitor, said, “According to Euromonitor data, the main areas of Samsung Electronics smartphone sales are Asia, Western Europe, South America, and North America, which is the same ranking as the region where the rapidly spreadcorona 19 impact appears in March, and the major regional sales will drop in the second quarter due to the downtime of offline distributors, reduced shipments, and reduced consumption.”
Galaxy A71 5G.
In the second quarter, Samsung Electronics plans to increase smartphone sales by launching the Galaxy A Series, a mid-range smartphone. Samsung Electronics recently launched the Galaxy A71 5G in China, and the Galaxy A51 5G will be released next month. Samsung Electronics is expanding its share in the Chinese and Indian markets this year with a mid-range phone strategy.
However, given the corona19 impact, the Noida smartphone factory in India has been out of operation for more than three weeks, a situation that concerns a sharp drop in smartphone sales due to a decline in consumption in the Indian market.
“How much Samsung Electronics can offset sales through premium and low-cost smartphones targeting by region will be a key factor in second-quarter sales,” kang said.
LG Velvet is available in four colours: Aurora White, Eleven Sunset, Aurora Grey and Aurora Green.
The mobile communications (MC) division in charge of LG Electronics smartphones is expected to record a 20-quarter consecutive deficit with an operating loss of 200 billion in the first quarter of this year. LG Electronics’ smartphone division recorded a 20th consecutive quarter of deficits, but despite the corona 19 impact, the deficit is expected to decrease compared to the previous quarter, and the first quarter is expected to be ahead.
This, like Samsung Electronics, is believed to have had an impact on the reduction in marketing costs. In addition, the q51, a mid-range phone launched in February, was relatively advanced.
“In q1, LG’s smartphones were relatively good in sales of entry-level models such as the Q51 amid a slump in demand,” said Kim Ji-san, a researcher at Kium Securities.
LG Electronics plans to lay the groundwork for a turnaround in its smartphone business with “LG Velvet”, a semi-premium product that lowers the price point than premium products in the second quarter. LG Velvet will be released next month at a price of 800,000 won.
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LG Electronics is also working to improve its deficit by expanding its total ODM share by more than half this year.
However, LG Electronics is also expected to be free from production disruptions and consumption declines due to the Corona 19 impact, with the company extending the downtime of its Smartphone factory in Pune, India, and closing until the 3rd of next month.